Is Asia’s Energy Lifeline in Peril?

Asian Economies Navigate Energy Crisis Amid Regional Tensions

Asian economies are facing significant challenges as rising fuel costs and energy conservation efforts become a priority. The recent US-Israeli strikes on Iran have disrupted one of the world’s most critical energy corridors, the Strait of Hormuz. This narrow waterway is responsible for roughly a fifth of global oil supply, with most of it heading east towards Asia.

China, India, Japan, and countries in Southeast Asia are the largest consumers of oil passing through the Strait. These nations import about 80% of the oil that transits the area, which accounts for roughly half of East Asia’s imported oil. Following Iran’s closure of the Strait of Hormuz on 2 March, tanker traffic plummeted, and at least 15 vessels were under attack. Despite these disruptions, supplies have not been completely halted, with many tankers still arriving across Asia.

Spillover Effects on Asia

The energy crisis has already begun to affect various countries in Asia. Pakistan, which heavily relies on imported oil and gas for transport, has seen petrol prices surge by nearly 20% since the attacks began on 28 February. Businesses are also facing higher costs and increased absenteeism as workers try to save on fuel, according to energy analyst Osama Rizvi.

“We are seeing a jump in food prices. Also, uncertainty is rife. For the common man, who spends more than 51% of his income on basic food items, such conditions hint towards an impending doom,” he added.

Authorities in Pakistan have responded with measures including a 50% cut in fuel use for government vehicles and a 60% reduction in the number of such vehicles on the road. Vietnam has also encouraged remote working to reduce fuel consumption while drawing on price stabilisation funds.

Strategic Reserves: China’s Stockpile

In the event of a full shutdown of Middle Eastern oil flows, countries would need to draw on reserves, though levels vary widely. Pakistan’s reserves are estimated to last 28 days. China appears better positioned, with strategic reserves covering roughly 120 days.

“There are additional corporate reserves that provide a further buffer,” Dan Wang, China Director at Eurasia Group noted. “I’ve been talking to a lot of Chinese state-owned companies; they sound quite confident that China can shield this risk,” the economist added.

Alternative Sources

Analysts such as Wang suggest that a prolonged and complete shutdown is unlikely, as exporters themselves depend on the route. “Even if tensions continue, there will likely be some guaranteed shipments because exporters themselves rely on this route,” the economist added.

China’s reliance on Iranian oil sits at around 13%, but accounts for roughly 90% of Iran’s exports. Iran is also able to bypass the Strait of Hormuz. Albeit less efficient, the Jask Oil Terminal in Iran, built specifically to route exports around the Strait of Hormuz, has resumed exports, loading about two million barrels on 7 March, according to Kpler.

To ease pressure, the International Energy Agency (IEA) has agreed to release a record 400 million barrels of emergency oil. Although alternative supplies are being explored, stabilising the Strait remains critical.

Long-Term Ripple Effects

Even if flows resume, the crisis could reshape Asia’s economic ties with the Middle East. Yun Sun, a senior fellow and director of the China Program at the Stimson Center, said China has already been rethinking its reliance on the region, with renewable energy projects likely to accelerate.

Wang added that countries may reassess broader economic dependencies. “It’s also the investment dependence and export dependence. So it’s like a whole package. I think that’s what makes this crisis way worse than actually just the oil crisis,” she concluded.